Financial Market Report

May 31, 2012

I asked the man in the street, I mean my friend on the Street, about the fate of Greece and the Eurozone, and this is what I heard:<<<I don't know about Greece. None of the other countries really cares about Greece, many because their own problems are overwhelming, and in the long run I think Greece would be better off out of the Eurozone and, in fact, the whole EU (haven't The Iliad and The Odyssey been proof a long time that Greece is both the single force most responsible for Europe and not itself European?). But you also have to consider the run on banks that Greece's exit would probably — some would say surely — trigger and which the other Euro countries obviously don't want and are incapable of dealing with, financially or otherwise. So it looks like Greece either gets out on its own, defaulting on its debt, and begins the long road to recovery, or, through no fault of its own, really, but because no one wants the fantasy to evaporate, it takes out the whole Eurozone and possibly, eventually, the EU as well. Good riddance to bad rubbish: The United States of Europe has always seemed ridiculous to me. But, meanwhile, chaos either way.>>>What can I say / but oy vay? Meanwhile, if anyone knows anything about a Spanish language Monopoly-like board game about the IMF called" Eternal Debt," please let me know. -- DL

May 29, 2012

I asked a friend who works on the Street to comment on the news of the colossal mishaps at JP Morgan Chase under golden boy Jamie Dimon's watch.

<<<One of the more bizarre signs of Jamie Dimon's fall from grace is the way he is now often referred to in the media as "James Dimon." (You feel like saying, "Private eye?") The real money loser, though, unless the initial $2 billion, which has already widened to $5 billion, turns out to be only the beginning of a chasm, is his loss of the ability to argue down regulation in Washington. That regulation, whatever its virtues, and there's no doubt in my mind that the regulation is needed, just as there's no doubt it won't prevent future stealing, mismanagement, recessions, and depressions, is going to cost JPM and the other banks a fortune. And do you remember the way they howled when Spitzer forced them to cough up $1.4 billion for the privilege of not admitting guilt to collusion between research and investment banking? In the real world it's called a plea bargain; on Wall Street it's known as the "settlement" (sometimes inital capped) or, occasionally and longwindedly, the "settlement agreement." Of course enforcing the separation between IB and research cost, and costs, the companies a lot more than the one-time fine. Volcker will be expensive, too.>>>

In other financial goings on. . . in the last twenty-four hours I have heard from pros that the best place to put your money at the present time is

a) A thirty-year mortgage at the lowest rate you can get from a reputable bank. "Cash is going to be a lot more expensive when prices and costs start to rise, and inflation comes back big."

b) Cash in US dollars as the last stable currency in a worldwide flight to safety. "The chances of a global recession beginning in the fourth-quarter approach 100%, not so much because of the mess in the Eurzone but because China and India are slowing."

d) Gold (always the default position for 5 to 10% of the investment public).

e) Kenneth Koch's poem in which the crazed poet gives away "the money you had been saving to live on for the next ten years. / The man who asked for it was shabby / and the firm March wind on the porch was so juicy and cold."

The only thing they all agree on is to avoid bonds, especially long-term bonds, and Treasury notes. -- DL

May 12, 2012

We asked our broker friend Eric Rice to devise a shortcut list of sample questions that would determine your financial intelligence quotient. It is Eric's belief -- and one we share -- that any smart, educated person, even one who is mathematically challenged, should be able to direct and control his or her investments. Think about it. No one has a greater interest in preserving and enlarging your capital than you do. Poetry is, to invert Wallace Stevens's aphorism, a kind of money, and yet American poets with academic appointments are said to spend an average of twelve minutes a year, maximum, on their retirement plans.

See how you score on the quickie exam Eric drew up to evaluate your potential as a self-actuated Wall Street amateur in the best sense of that old-fashioned word.

(1) Investors drawn to the precious metals market, and to the yellow metal in particular, are known on the Street as "gold bugs." Explain the derivation of this term.

(7) If you hold 150 shares of Coca Cola and the firm announces a two-for-one stock split effective in August, should you sell or hold the new shares (presuming that they are long-term holdings and therefore taxed more favorably than stocks held for less than one year)?

(8) When, as now, money market funds yield zero, and saving accounts return less than one percent, what should you do with money you can't afford to lose?

(9) What is a DRIP?

(10) If you have $50,000 invested equally in ExxonMobil, IBM, Johnson and Johnson, Intel, and Pepsi, are you properly diversified in today's market?

Eric's answers :

(1) Poe's story.(2) Yes, except when a "lump sum" (inheritance, lottery) lands in your lap and must be handled all at once(3) Yes and no. The issue is under debate.(4) Index funds promise you "average" returns. Is that what you want? Are you American?(5) True(6) AMEX probably, DIS definitely(7) If you agree wth Warren Buffet's buy-and-hold strategy you keep all the shares.(8) You put emergency money in a savings account, and your core investment cash account in a short-term bond fund. Also, you load up on dividend-growing stocks. (9) Dividend Re-Investment Plans (where you receive your dividends not in cash but in additonal shares of stock)(10) Eric would say yes, though a purist might question the doubling-down in tech (Intel, IBM), a sector Eric favors for superior short-term performance, If you had an additional fifty thousand and wanted to continue a blue chip strategy, you might add equal amounts of Caterpillar, Wells Fargo, Chevron, Proctor and Gamble, and Microsoft.

February 26, 2012

Entertaining as Rick Perry’s November 9, 2011 “Oops” moment was—you know, the one when in his frenzy to take a hatchet to government, he forgot which heads he was chopping off—the more significant and now completely repressed “oops” moment for the American right occurred three years earlier, on October 23, 2008, when Alan Greenspan confessed his “state of shocked disbelief” that markets don’t regulate themselves.

Without rules, the free market is kind of like the punch you might have served at parties in your college dorm. Who knows what toxic assets were swimming around in there? Fermented Hi-C? Grain alcohol? Nail polish? Why not, when punch itself was invented by desperate sailors who had run out of beer and turned to the locals for a stimulus package. One of the oldest recipes calls for arrack, which tastes a bit like a credit default swap and is made from palm trees. Any punch worth its floating lemon wheels is meant to creep up on guests, unleashing a voracious appetite for risk. In dormitories, that means regrettable sex. Greenspan’s deregulatory punch unleashed a voracious appetite for paper profits, what he called “euphoria” and the rest of us call greed.

Beyond chopping off regulatory heads wherever they might be, Chairman Greenspan left another insidious legacy. He handed off a historically low 4.25% interest rate to his successor, Ben Bernanke, who then had very little room to cut it. Fiddling with the Federal Funds rate is one of the few tools the Fed has. Roughly put, the idea is to crank the rate up when the economy’s “euphoric.” Paul Volcker raised it to 20% in 1981, and was duly vilified. Nobody likes a spoiler, but ever since the Depression, the Federal Reserve’s job was supposed to be to take away the punch bowl just when the party gets going. And part of why you take the punch bowl away is so that you can bring it back, by lowering rates in a crisis like the one we have now. That’s hard to do when rates are already low.

Greenspan not only failed to take away the punch bowl, he spiked it with 80-proof easy money, in the form of both low interest rates and deregulation. No wonder the speculators got drunk. His tenure fit right in with the larger recklessness of the Bush years, the blind appetite for risk, the unwillingness to weigh long-term consequences against immediate gain--in the case of the invasion of Iraq, the neglect to think even one week ahead into a post-Saddam future. The attitude was to take the easy profit in the short term and let the future fend for itself. Thus so-called fiscal conservatives and budget hawks gave away a budget surplus to the 1%, rather than saving it for a rainy day. Meanwhile, the rest of us journeymen got punch drunk, battered in the early rounds of what turned out to be an economic TKO to the middle and working class.

At his 2008 hour of reckoning, Greenspan predicted a “restrained” market “for an indefinite future”:

"The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors, chastened, will be exceptionally cautious. Structured investment vehicles, Alt-A mortgages, and a myriad of other exotic financial instruments are not now, and are unlikely to ever find willing investors."

Chastened, my ladle. Not only did investment banks and hedge funds quickly return to that “myriad of other exotic financial instruments,” Greenspan himself renounced caution a few years later, criticizing the meek regulations of the Dodd-Frank Act for their attempts to impose order on financial markets.

Have a cup of Greenspan's Oops. You’re going to need it when you get rabbit punched by those party animals again.

December 31, 2011

In my experience, price-earnings (PE) ratios are the most efecvtive way to evaluate common stocks. Here's an oversimplification for the beginner. The price of a stock is what it's listed for on the Big Board or Nasdaq or whatever stock exchange you choose. The number varies from minute to minute -- actually from nano-second to nano-second -- simply because the market arrives at the figure by the oldest economic model, that of supply and demand. The former (the number of shares available for purchase on any given day) can fluctuate, but is the latter -- the demand for a stock -- that can gyrate dizzily, for it depends on a whole range of factors, starting with earnings reports, continuing with rumors, modified or accelerated by news particular to the company, macroeconomic trends, or world events, and ending with the most volatile factors of all, investor sentiment and mass psychology. The earnings of a stock are the company's profits for the most recent three-month period divided by the number of shares outstanding. This, too, is an unstable figure. If the profit line rises, relative to the same quarter one year ago, then the price-earnings ratio should narrow, making it a more attactive stock to buy, unless the price has already gone up in anticipation of this blessed event.

Even this brief summary shows the difficulty of using P-E ratios. In addition to the instability of the figures, there are further variables you need to adjust for. There are industry-specific factors: for example, historically a blue-chip bank would have a lower P-E ratio than a manufacturer of electronic equipment. But the history of bank stocks since the collapse of my Fictional Uncles' investment house on September 15, 2008, refutes even the loose application of P-E theory that suggests that a low ratio correlates to a relatively safe investment. Then there are "earnings surprises" -- spikes or drops in profit -- that have an immediate effect on the price of a stock, and that no P-E ratio, however sophisticated your calculations, will prepare you for. Let Burton G. Malkiel, author of A Random Walk Down Wall Street, a real pro and no con, have the last word: "God Almighty does not know the proper price-earnings multiple for a common stock."

This is the segue I needed to justify tagging the previous post -- "All God's Chillun Got Rhythm," as sung by Ivie Anderson (and also as performed in the Marx Brothers' Day at the Races) -- in the category of "Financial Market Report." Faith in the Lord is the single best guarantor of good stock market perofrmance especially if expressed with the hassidic abandon of the singers and dancers of "All God's Chillun Got Rhythm." You can read about the song here, with special reference to the scene in the Marx Broithers movie. For a discussion of the song as a jazz standard, click here. Did you know that Gus Kahn ("Love Me or Leave Me," "I'm Through with Love") wrote the lyric? Happy new year! -- DL

October 22, 2011

According to a board of experts from the business community, which of these sentences applies to "Occupy Wall Street"?

-- "It is not a tea party."-- "Tax the Rich," OK, but it depends on what the definition of "rich" is -- "Tattoos, body piercings, a pungent aroma, and in her other hand the gender studies major held an iPhone"-- The question is, "Will Marie Antoinette subsidize Madame Defarge's knitting business?"-- The way to circumvent "obstructive nihilism" is to eliminate loopholes and lower marginal rates and then move to Basel 3 and higher capital requirements

According to a blue-ribbon panel of economists, money managers, investment bankers, and security analysts, which of these sentences applies to recent acitivity on Wall Street defined in the customary fashion?

-- "We're kicking the can down the road."-- "China may crash. It's a bubble waiting to happen."-- "Of course, if theres's a double-dip recession, all bets are off."-- "Multiple levels of organizational hierarchy lead to managerial dysfunction."-- Big pharma is singing the Neil Sedaka hit "'Breaking Up is Hard to Do'

True or false: The controversial new Calvin Klein's billboard campaign was released in select American cities during the week of October 17 but was immediately suspended in thirteen states by court injunction.

August 09, 2011

Not in the sense of "poets' physics," or "rocks for jocks," but let's face it, who couldn't use a crash course in high finance? And a crash course is exactly what we should call it, because stocks today are more vulnerable than ever before to crashes, "corrections," and even one-day aberrations like the "flash crash" of May 2010 when, during a single afternoon, a computer error triggered a dire convulsion, with some stocks losing a third of their value. Electronic speed being what it is, things that used to take three months to happen can take place in the course of a day that may begin with a two-hundred point drop and end three hundred points north of the previous day's close.

Most poets' eyes glaze over when they hear the words "credit downgrade" or "debt ceiling," and that's a pity not only because these phrases have their poetic potency (as Julie Sheehan has shown), but because it's your money and you should trust no one with it, and if you're a poet you're probably a control freak, and the basics of investing and the allocation of your assets are not uninteresting subjects for a control freak.

Money is a kind of poetry, as Stevens said, not facetiously. And Archie Ammons explained that money resembles poetry inasmuch as both are ways to negotiate desire.

The stock market is nothing more or less than the way we measure wealth. All values are relative, and the value of capital, and especially of stocks and their derivatives, defies scientific analysis. Price-earnings ratios, earnings momentum, cash flow: all these seemingly objective criteria are far less important than mass psychology for the outcome recorded in the stock market storecard. In the simplest terms, markets are high when people are feeling rich and low when people are feeling down. In a rational universe, markets vary according to the laws of supply and demand. In a volatile universe in which the forces of anarchy and entropy have their say, the movement of markets is determined in the dynamic between greed and fear, which interact in the human psyche in the way that the Dionysian and the Apollonian act upon each other in Greek tragedy according to Nietzsche. Greed makes markets go up, fear makes them go down.

Law one: markets go down faster than they go up. Much faster. Maybe by a ratio of three to one, or better than the odds-on favorite at the Preakness or the Belmont.

Twice in the last week the market -- that is, the Dow Jones Industrial Average as a surrogate for all the stocks traded on the New York Stock Exchange -- was down by more.than five hundred points. Today it recouped some losses, bouncing up four hundred points, after traders assimilated the Federal Reserve Bank's announcement that short-term interest rates will stay low for two more years. It's Fed-head Ben Bernanke's moment of glory. They're calling him Big Ben on TV.

Good news, certainly, and a heartwarming market reaction, but the continued volatility is an unambiguous indicator of uncertainty, which Wall Street hates more than anything else. So for now and until further notice the stock market remains a worrisome thing that'll leave you to sing the blues in the night. At least yesterday's panic selling is over. For now.

Law two: Never sell into a panic. When people panic, get out of the way. And people are panicking all over. It is taking a violent turn in law-abiding London and Manchester where gangs are looting stores and setting them on fire. That's one kind of panic. Here, in more orderly corridors, investors are rushing to the exits, selling their shares at a twenty-five percent discount, and buying gold. This is classic "flight to quality," and it must be said that gold has been the best investment strategy for a whole decade. Still, it has reached the unprecedented height of $1,700 an ounce, more than even the most dedicated gold bugs can have foreseen. Could the precious metal be the latest bubble to await bursting?

For most this is a time for doing nothing, and that includes filing your latest retirement-account statements without looking at them. For the adventurous few, it's tempting to buy some things on the cheap. Experts who rarely agree on anything else concur that this is an oversold market, and it may be a good moment to swoop in and pick up desirable stocks at their lows. But that is neither for the faint of heart nor for the contrarian of mind.

Which shares to buy if you do have the cash? With the bank paying nothing for the dough in your savings account, and with bonds and treasuries yielding tiny fractions, the smart money will probably gravitate to dividend-paying blue-chip worldbeaters such as Exxon Mobil, Chevron, Intel, Disney, UPS, Johnson and Johnson, and Pepsi -- all of them undervalued as a result of the activities of the past week. With a portfolio centering on these and such other standbys as Warren Buffett's Berkshire Hathaway, current market favorite Apple, evergreen IBM, Coca Cola, Procter and Gamble, American Express, Wells Fargo, Microsoft, a patriotic rail or two (Union Pacific, CSX) and a couple of water and electric utilities, you can pretty much throw away the key and sleep soundly at night. Extra disposable income might be well used in a mutual fund specializing in resource-rich Canada.

What has led to the present impasse? The market's forward momentum, fitful at best after the lows of March 2009, lasted two years. In March 2011 Japan's earthquake, tsunami, and nuclear meltdown threw everyone for a loop. Even worse for the global economy has been the show called the "European contagion." As in a comic opera, Portugal, Greece, Ireland -- one after the other, each played by an aging soprano -- teeters on the edge of a cliff until a helmeted Valkyrie steps in and saves the overfed maiden. The whole idea of a European economic union, with a single currency, comes down to the kindness of Germans and their willingness to work harder than their neighbors. Sometimes you lose a world war twice but still come out on top.

There are those who maintain that recent jitters on Wall Street have more to do with Europe's finances in shambles than with the US economy per se, and then you add the turmoil of Arab spring, the nuisances of North Korea and Iran, and most important, the emergence of China as America's biggest rival. We're told we're not going to have a double dip recession. And we probably won't. But it's hard to overlook the growing gap between the extremes of wealth and poverty in this country. Formerly the rich favored liberal social policies as an easy insurance policy against revolution. But that spirit is on the wane, and liberalism, like the conventional wisdom, is wrong and has been wrong for forty years, at least according to the conventional wisdom.

The balance sheets indicate that corporate America is in great shape. All that outsourcing, that downsizing, that cultivation of foreign markets, has paid off big. On the other hand, as economists say, nearly one of every ten workers is unemployed, a lot of homeowners are defaulting on their mortgages, and shrill law school brats on cheap late night TV commercials are hawking the virtues of bankruptcy. Something's gotta give.

We need to figure out a way to get corporations to repatriate their foreign earnings. At the moment, they would prefer not to, because if brought into the US those earnings would be taxed at conventional rates. So the money stays abroad. Some corporate managers have been lobbying the bureaucrats to lower the tax rate on those repatriated funds as an inducement. That would be the carrot if a carrot and stick policy is in order. We need those profits working for the economy and we need the revenues from the tax on those profits to keep the government going, though it may be time to consider something radical -- like eliminating the House of Representatives or keeping it just for show like the House of Lords in London.

We talked it over tonight at my place. My friend Paul said, "Everyone knew all along that they wouldn't default, so how come the markets tanked after they struck an eleventh hour deal to avert the catastrophe?" I like his wife Nancy's answer. She talked about the sorry spectacle of the DC lawmakers. "Posturing, sure, but a few of them did seem capable of walking the economy off a precipice. It was a shameful display." It may have scared people, and any retailer in America can tell you that Mr. and Mrs. Future, the American consumer, lacks confidence. Paul would add that political leadership has been lacking, and he has a point. When the key phrase in an Obama speech is "a balanced approach," the oratory is not going to lift spirits or stock prices.

One last thing. Is this like 2008? No way. Nor like 1987 when a 508-point crash on an October Monday was something it took us three months to absorb, which we finally did when a silver-haired man in a three-piece suit, a lisp, and a smile, reassured us that this wasn't 1929. -- DL

July 20, 2011

James Fenton is an English poet who has always defied the stereotype. He is a splendid poet, who comes to us via Auden by way of John Fuller, and he served as Oxford Professor of Poetry for five years in 1990s -- as high an honor as the British academic establishment knows. But he is nothing if not versatile: he has been an influential London theater critic, has worked on musicals, and has written stimulating articles and books about the political turmoil he witnessed at first hand in Asia

The once and future political journalist, New York-based at present, is weighing in on the American scene for theLondon Evening Standard.I will past an excerpt from his report of July 15. You may read the whole piece here.

<<< . . . the stalemate cannot hold any longer. We see this in the murmurings from the ratings agencies Moody's and Standard & Poor's. America's credit-worthiness is, predictably, at risk of a downgrade. We see it also in the surprising readiness of certain figures on the Right to listen to a creative proposal from Mitch McConnell, which hands over to the President the ability to approve the raising of the debt ceiling, in such a way as - it must be hoped -will saddle him with the obloquy for doing so.

There is nothing middle-of-the-road about McConnell. He's the one who, at the mid-term elections, claimed that the Republicans' chief priority from now on was simply to destroy Obama. He modified his language later, but his message remained sternly negative.

Now, however, he seems ready to jump before the train is wrecked. Someone appears to have read him a lecture on the price of intransigence and given him, perhaps, a salutary fright. >>>

Please attend the New School poetry forum featuring James Fenton on Monday, October 3, 2011 at 6:30 PM in The Bark Room, 2 West 13 Street. Fenton will read for about thirty minutes, then takes questions from moderator David Lehman.

October 17, 2010

And Ben Bernanke spoke: "There would appear -- all else being equal -- to be a case for further action,"

This was widely taken to mean that the Fed will aggressively pursue a policy of quantitative easing.

On the other hand, interest rates are as low as they can go and what else can the Fed do to stimulate job growth, which remains job one?

Could we finally be seeing some light at the end of the long housing tunnel?

Factory orders are up, inventories are reasonable, demand for durables goods has firmed, and customer reticence may be multi-causal.

Meanwhile, we see a mixed picture elsewhere. Consumer confidence has taken a hit.

A new worry in the form of the dreaded Death Cross, in which the major indexes' 50-day moving averages slip below the 200-day average, has materialized.

On the other hand, it may prove to be a minor blip on the landscape or may even turn out to be a Golden Cross in which the 50-day measure climbs above the 200-day mark.

At least the economy does not have that deer in the headlights look.

We aren't out of the woods yet, of course. In retrospect and with twenty-twenty hindsight it was unwise to litter the paths with bread crumbs on the misguided assumption that other commmodities (natural gas, oil, coal) were more valuable and should be hoarded.

On balance, though, fears of a double-dip recession are abating in favor of the view that the glass is half empty.

True, we do not envision a Goldilocks scenario where everything tastes just right

Still, the data suggest that a modest recovery may be under way, with forecasts of 1.5% GDP.

The question is: Will it be sustainable?.

The bulls are strking a more confident pose as they line up in front of their mirrors in glorious masculine Wall Street profile.

Nevertheless, the road will be long and winding and marked by unexpected obstacles and occasional setbacks.

It could take months for this to happen.

On the other hand, the present is upon us like a gift we cannot refuse.

Where is that one-armed economist that Princeton promised President Truman? -- DL

August 23, 2010

"As a struggling poet, in my late 20, I teach as an adjunct plus I do some office work. My rent and overhead are low. I am single, come from a family of modest means, and am basically financially illiterate. I would rather read Wallace Stevens than Forbes. What do you recommend?" -- Good Intentions, Michigan

I'll keep it simple. Invest the same amount every month in a well-run mutual fund. Do it with autopay and limit your labor. Invest whatever you can afford to put aside without feeling like a martyr.$ 100 per month, $50, or even $25 will work.

Important: when you set up the account, elect to have the dividends and capital gains reinvested. You'll get the benefits of dollar-cost-averaging, regular saving, and the accumulation of dividends. All the reputable mutual fund outfits have 800 numbers staffed by people who can help you with the application process.

Reading Wallace Stevens is a more fun and intellectually more rewarding than the memos that Wally himself had to read in the office. But you don't need to read Barron's or Forbes or Smart Money to be an investor. If you have the horizon of a true long-term investor -- using money you won't need for at least ten years --investing on the installment plan in a sure-and-steady fund is one of the best things you can do.

August 12, 2010

We received a recent inquiry from a poet wondering how to invest a small inheritance she received on the death of her father and stepmother in a car accident last winter. The sum was more than $100,000 but less than twice that sum. She says she would be inclined to put half of it in a money market fund under ordinary circumstances. But at the moment, cash in a money market account is "dead money" drawing no interest. What should she do?

Our
resident expert, a big fan of the great Bill Evans (left) says you should always have enough money in a federally insured savings account to sustain you for six months or through a crisis of emergency. Savings accounts pay less than one per cent interest at the moment -- something like 0.8 % -- but that's better than nothing and $50,000 put away will let you sleep better at night.

An equal sum put into a short-term bond fund -- such as Vanguard Short-Term Investment Grade Bond Fund (VFSTX) -- makes excellent sense because (1) you get close to a 3% return, (2) Vanguard charges you less than any other firm and is noted for probity in an industry where you can't take that for granted. Bond prices vary inversely with interest rates, so whenever the latter go up -- as they will eventually -- the value of the bond fund will decline. But this particular fund has an outstanding record, and when the rates do go up, you can transfer the balance to the Vanguard Prime Money Market Fund.

That leaves a certain amount of money that can be used for long-term investments if you face no major expenditure (down payment on a house, kid's education) in the near future. The market has not recovered from the devastation of 200, which means you can pick up some blue chips at bargain prices. You might look at dividend-paying shares of companies with good reputations, such as IBM, GE, Pepsi, Proctor and Gamble, Exxon Mobil, Intel. The cardinal rules are (1) Diversify. (2) Pick companies you know whoise products or services you understand. (3) Do not trust any broker. (4) Do not buy a stock because someone recommended it in the locker room. You can open a brokerage account with Fidelity, which provides excellent service. If individual stock-picking freaks you out, a solid alternative is Vanguard Wellington Fund (for very conservative investors) or T. Rowe Price's Equity Income Fund (for moderate risk).

May 18, 2010

On another down day for the marketwhen everything except Wal-Mart went down, fuckit,are stocks oversold?should you stock up on gold?will the Euro continue to crash?what caused last week's flash crash?

It's true that Buffett is shedding some of his blue chips (J & J, Kraft, P & G), but should you?Does Citi under 4 merit a speculative bet?what should we do about Portugal's debt? Will IBM split? Does it matter? Is the emphasis on the latter?

Goldman at these levels is attractive,but are you catching a falling knife?

Is there a silver lining?Or is it too late to buy Newmont Mining?

Where is that slip of paperon which I wrote down the formulafor the ideal asset allocationfor someone my age sex race and nation?

And would it be worth it, would it be worth while,to buy Exxon Mobil at 62to short Monsanto to learn esperanto with a smilein Toronto?

January 10, 2010

Mindful of how many poets and poetry lovers plead financial ignorance and sometimes even boast of their ineptness when it comes to managing their own money, we recently spoke to two of the last sane brokers on Wall Street -- the duo who told us not to panic during that terrifying seven-month period when Lehman went under in September 2008, the US economy went into intensive scare, and the stock market tumbled to decade-long lows in March 2009. Their advice at the time: hold your stocks, wait for the rebound, and then gingerly start buying some ultra-safe blue-chip issues as the warm weather settles in. Anyone who did as advised, simply holding firm, selling nothing and perhaps accumulating some Procter and Gamble, Microsoft, IBM, Coca-Cola, knows how brilliantly that advice has worked. But now, in 2010, everyone is uncertain -- and there's nothing a jittery investor likes less than uncertainty. The experts are divided between the wall of worriers who think we're in for a major correction, with stock values decreasing by a depressing 10 to 25%, and the hardy climbers, perennial bulls, who forecast a sustained recovery from this ugly punishing jobless recovery. So what should we do? Our dynamic duo asks us not to identify them by name or firm, citing federal regulations. Here's what they say:

<<<You have to assume the Fed will raise rates at some point -- but not too soon. Bernanke, a student of the great depression, is fearful of dampening an economic recovery that is sluggish at best, so the rates will likely remain at historical lows until the end of summer. For the individual investor this means that money market yields are getting you exactly zero. Money stashed in an old-fashioned saving account is a good alternative for rainy day funds (i.e. emergency money), even though you barely get 1%. So where should you park your investment money -- what we like to call your "core" account? A good short-term investment grade bond fund, with a low expense ratio, like Vanguard's, probably makes the most sense.

But interest rate hikes are inevitable, and an appealing alternative to bonds (whose value goes down as interest rates go up) is dividend-paying high quality stocks. Although a "flight to quality" usually coincides with a steep loss of investor confidence, that money has gone so far to gold while bolder speculators have been testing the commodity, currency, and international equity markets. Which means that you can buy champion stocks like Exxon-Mobil and Johnson and Johnson at reasonable valuations and count on dividends to give you an excellent total return especially if you plan to hold them for a couple of years. At current valuations we also like Cisco and Intel and the rails as momentum plays. Utilities, with their high dividends, are traditional havens for cautious investors, and you might look at Con Edison (5.6%), Duke Energy (6.1%), Exelon (4.4%). Republic Services at $28 a share, and a dividend of 2.7%, is worth a shot, if only because it's a well-run company and the waste management business generates great cash-flow. Barron's is bullish on Pepsi, Monsanto, Dow Chemical, FedEx, and Abbott Laboratories.

If you have made money on American Express, which just capped a fantastic year, please remember the old adage: Wall Street likes bulls and bears, but sooner or later pigs get slaughtered. Consider taking some money off the table. Of the thirty stocks that make up Dow-Jones Industrial Average, we think GE will gain the most this year. When Berkshire-Hathaway's B shares split fifty to one, you might pick up a hundred and ride with the oracle of Omaha, Warren Buffet.>>>

Thank you, guys. I would add only that Time's cover story on "man of the year" Benjamin Shalom Bernanke is excellent and that the perfect music for this season of financial uncertainty and bitter cold weather is Ella Fitzgerald's live performances of "On the Sunny Side of the Street" and "Accentuate the Positive" with great piano accompaniment back to back. Defines swing. Twelve Nights in Hollywood. Paul Smith and Tommy Flanagan were her pianists.

June 22, 2009

In the course of reviewing books about Warren Buffett, "the business of life," money, and success In The New York Review of Books last month, Sue Halpern writes: "Buffett, it is safe to say, has a different relationship to money than you and me. For us it's a means to an end. For him, it's a vocation. He is called to it. If it's for anything, it's for getting more of. The man is a collector. He just happens to collect dollars."

Well, I don't know. It's "safe to say" -- a locution implying that saying the wrong thing will get you punched -- that the famous exchange between Fitzgerald ("the rich are different from you and me") and Hemingway ("yes, they have more money") floats behind the "different. . .than you and me" in the first sentence above. But I still have trouble figuring out who "we" are. Do you know anyone, even among the poor, for whom money is simply "a means to an end"? Doesn't money almost always stand for something besides money? Status, for example, or achievement. Or security: there's nothing like a million buck in treasuries to give you a warm sense of security. Or shit (see Norman O. Brown). Or manners (see Proust). Seems to me that money is not only Buffett's vocation but his vacation as well. Then there's the idea of collecting. What is the difference between collecting dollars and collecting stamps, art, coins, fedoras, ashtrays? Aesthetics?

Finish this sentence: If the crash of last September has taught us anything, it's --

June 09, 2009

Summers fall into two categories for investors: tough sledding and clear sailing. Clear sailing is when things are as they should be: light blue sky, nice little sailboat on Buzzard's Bay, with breeze enough for going out and coming back, the Red Sox are in first place but looking over their shoulders at the Yankees, and you sit back and feel pretty good about your GE, IBM, Johnson & Johnson, Cisco, and Pepsi.

Unfortunately this summer looks like it's the other kind: tough sledding, when despite the summer heat (92 in New York City today) every step feels like your dragging a sled up a snow-filled slope for the thrill of chuting down later as fast as stock prices tumbled last Friday.

Oil prices per barrel and gasoline prices per gallon are still going up, unemployment is up, airlines are up in the air about how to deal with a whole Sunday Times of bad news, the Dow goes down four hundred points and NASDAQ sheds about fifty, and even GM is thinking twice about the wisdom of mass producing the Hummer.

In such a climate it makes sense to own rails, which run on coal and therefore benefit from the travails of the trucking industry. Warren Buffett has bought a bunch of rails including Burlington Northern and Norfolk Southern. Makes sense to me.

March 31, 2009

A reader asks: What can be done to save the financial system? How seriously should the individual take the national economic crisis?

There are some obvious steps we can take. Many economists agree on these:-- Banks must lend to individuals or organizations that are good bets to pay back the loan in full.-- Reasonable collateral must underwrite transactions on derivatives.-- Underwriting standards should be strenghtened and enforced.-- Allocate additional funds to FDIC (Federal Deposit Insurance Company) to strengthen confidence in savings accounts. -- Clarify accounting rules applicable in all states.-- Reduce the number of foreclosures by restructuring mortgage debt, adopting "rent-to-own" options or whatever it takes.

Our man on the Street has these tips for individuals:

"This is not a good time to quit your job. If you are steadily employed and are eligible for a tax-deferred investment plan for a portion of your salary, maximize it; you get the full benefit of dollar-cost-averaging and you limit your risk, with obvious tax advantages. There are bargains out there right now."Sell neither your house nor any blue-chip securities unless you absolutely have no choice."If you have credit card debt, pay it off right away. Make that your number one priority. Put yourself on a budget. Treat the while business the way an alcoholic treats the twelve steps: soberly and seriously."It is only sensible to proceed cautiously at a time like this, but I would disregard alarmists who tend to extrapolate from current conditions and discount the possibility of change."In the short term, be patient. Have confidence. We've been through bad crises before and, if necessity is the mother of invention, we're about due to have some invention."Read poetry. It has the best cost-benefit ratio of anything in the culture."

September 30, 2008

It's easy to get scared when you listen to the talking heads -- and when the Congress (the Republicans especially) so irresponsibly and even irrationally votes down the so-called bailout that, while imperfect, would at least allow us to regroup.

At such a moment it's important to remember these axioms:1) Financial markets always overreact and then correct. For example, yesterday's precipitous drop in the Dow (more than seven hundred points) and today's partial recovery (over three hundred points up as I write).

2) Never pull the trigger (or the plug) when markets are in chaos. Better to do nothing. Today is the last day of the quarter, and quarterly statements are about to be issued. You may want to file yours without reading it first.

3) Don't panic. If you are prone to panic, reread # 2 above.

4) History repeats itself -- but always with variations. Despite comparisons to 1929, there are major differences, legal protections in place along with the apparatus to implement necessary regulatory changes as well as changes in accounting methods to preclude such upheavals in the future.

September 26, 2008

Posted today on Harper's:<<<From a statement read at an event marking the release of Best American Poetry 2008, held last night at The New School, in New York City. David Lehman is the series editor of Best American Poetry, and Robert Polito is the director of the writing program at The New School.

Chairman Lehman, Secretary Polito, distinguished poets and readers—I
regret having to interrupt the celebrations tonight with an important
announcement.
As you know, the glut of illiquid, insolvent, and troubled poems is
clogging the literary arteries of the West. These debt-ridden poems
threaten to infect other areas of the literary sector and ultimately to
topple our culture industry.>>>